by Giles Coghlan, Chief Currency Analyst at HYCM
If the USD was in a vote for a popularity contest it would win. The JPY and the CHF would come in close, but when the chips are down people want USD. With 70% of all currency transactions involving the USD its popularity will remain as long as folks are scared. Folks are very scared right now, but feeling a little more optimistic today as COVID19 cases slow and Australia has a glimmer of hope with some lice treatment that are fast tracked for human trials.
Now, with the opening up of the swap lines to read some analysts you would think that the USD was about to go into a bear trend. Look at the USD bids we saw in the DXY as the COVID19 crisis really took off. The USD bids are here to stay as long as the COVID19 spread continues. Everyone will want the USD.
So, for the coming week or two it would make more sense to see a test of 102.50 in the DXY before a test of 96 or 97, as long as COVID 19 fears remain. If we do see a move down to 96 or 97 then we would anticipate buyers from the bottom of the range as well. So a clear buy from 96 and 97.
Last week we saw the USD strengthen on all the negative jobless claims out of the US. The USD was being bid as a safe haven play. As long as this narrative continues, slowing jobs and increasing COVID19 cases, expect more USD strength this week. What is interesting is to see the way the DXY responded during the global financial crisis of 2008/2009. See below.
If we see a similar response, then this tells us that global problems have the world reaching for the USD. After all, why would you reach for anything else?
Learn more about HYCM